The United States, China and the New World Order
This chapter examines the monetary policies pursued in the major developed economies in response to the global financial turmoil. The initial responses revolved around ‘conventional’ monetary policy which controls the shortest market rate (overnight interbank rate, bill rate or repo rate) with the aim of affecting the general structure of interest rates, economic activity and prices. Authorities in the major countries drove these policy rates to low levels, in some cases effectively zero, much lower than those in the 1930s and even lower than the 0-1-2 pattern of 2003. Judging that more stimulus was required, the monetary authorities turned to so-called ‘unconventional’ monetary policies in the form of ‘quantitative easing’ (QE), engaging in massive purchases of government bonds and other securities. In the case of the United States, for example, such a programme (QE1) took place between January 2009 and March 2010. A second round (QE2) took place between November 2010 and June 2011. The Federal Reserve Bank then moved further into uncharted waters by launching a third round – in this case open-ended – in September 2012.
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